Gold – Dollar – Reality

Posted Feb 14, 2015 by Martin Armstrong

QUESTION: Mr. Armstrong, its seems rather clear that for the last 30 years you would have been far better off just buying stocks rather than gold. I do not understand how people can even listen to these gold promoters who have no regard for a person’s financial survival. I have to wonder if they are not being paid on the side by the bankers. My question is rather simple. Going into 1999, central banks were selling gold. Now the Swiss voted their central bank can sell off its gold reserves. The new generations do not buy what these promoters keep preaching.The do not believe even owning a home is a form of savings. Will the central banks start selling gold since they are dead broke if not not to try to stimulate the economy since we have negative interest rates? I think you may be correct again but the fundamental may be these people are so broke they sell everything.

Thanks for your ray of hope in the middle of these dark clouds.

BD

REPLY: The problem with the gold promoters and their followers is rather simple. They judge the world by themselves. They are incapable of looking at an issue with unbiased eyes. They cannot grasp that facts mean nothing. They can argue the World Gold Council is wrong, but that does not change anything. They refuse to look at reality and touted that the Swiss franc would rise if the Swiss voted to deny the sale of gold. But economically, the Swiss pegged the franc to the Euro to stop the very thing they were preaching – the rise in the franc. A strong currency reduces exports and results in higher unemployment as we have seen in Europe as a whole.

The gold promoters just hate the dollar yet the lower the dollar fell the stronger the economy became. We had the Plaza Accord in 1985 establishing G5 to lower the dollar. They think me saying a strong dollar means a strong economy. They just cannot get it that what they preach is dead wrong and the world functions precisely opposite of their mantra.

Following World War II, European politicians measured their success by the fall in the dollar against their currencies. This is part of the problem with Europe and the rise in the Euro produced the entire crisis. The gold promoters cheered that the Euro would destroy the dollar they hate so much. They cannot comprehend that the rise in a currency has NEGATIVE implications opposite of a stock. Money rises and assets fall with job opportunity. They preach gold as money and would create the worst economic depression in history. They expect MONEY to retain its purchasing power yet then expect to make money on investments. This is the most bizarre thinking I have ever come across.

There have been two targets for a gold low. The normal technical replacement back to the 1980 high, which calls for a break under $1,000. The worse case is a drop all the way down to test our Yearly Bearish Reversal at the $680 level. The latter would certainly be possible if the central banks start selling off the gold since it no longer serves any function within the world monetary system no matter what the gold promoters argue. We are moving to electronic money so the governments can get every penny of tax. That is the trend and the governments are destroying the world economy in the process.

The gold promoter’s deflationary argument for gold as money is as plausible as saying land is still real wealth as the physiocrats argued – a theory invented by a doctor to the King of France, Francois Quesnay. Their philosophy was Physiocracy, which was taken from the Greek form meaning “Government of Nature”. This view that money was agriculture and that ONLY the farmer produced the wealth of a nation is similar to saying only gold is money. The physiocrats argued that everyone else derived income as a parasite living off of the producers of agriculture. This idea that money was the production of agriculture led to empire building, which still influences both Brussels and Moscow today. The strength of a nation became the idea that the more territory it possessed meant it was wealthier. Currently, many in Russia believe that expanding their territory means that Russia is becoming stronger. This theory was proven incorrect by Japan rising to the second largest economy post-WWII with no real landmass or natural resources. Japan rose because the wealth of a nation is not its land, gold, or agriculture – it is the total productive capacity of its people.

We can see why the physiocrats came up with this concept that money was agriculture. During the mid 19th century, 70% of the civil work force was employed in agriculture so you can see where their ideas emerged. By 1900, still 40% of labor was employed in agriculture. By 1980, agriculture fell to just 3%. If a meteor of pure gold fell in Bangladesh, it would not transform that country into the major financial center. Spain had the vast majority of gold in Europe and squandered it becoming a serial defaulter on their national debt. Spain was successful in collapsing from the richest nation in Europe to the poorest. They just hired others to do their work and failed to develop their local economy. When the gold was gone, they still had nothing.

It was Adam Smith who wrote Wealth of Nations to rebut that argument that anything tangible was wealth. He said if a farmer sells his crop to someone in another country and a candlestick maker did the same, they both returned with income and contributed that to the wealth of a nation.

You can argue until the cows come home. The question is rather simple. Are you trying to survive or prove a dead theory? Gold is an asset – not money. As such, it will rise against a collapse in confidence. It has a poor track record as a hedge against inflation. We need to stop ignore the truth and stop promoting nonsense. The wealth of a nation is purely is educated and productive capacity of its people. FACTA hunting down American is attacking the wealth of the nation. Raising taxes reduces the productive capacity of a nation. Sorry – Marx was dead wrong.